Actio Pauliana can be Initiated even in the Case of a Division
By Dr Attila Kovacs, Kovács Réti Szegheõ Attorneys at Law
The European Court of Justice interpreted for the first time Articles 12 and 19 of the Sixth Directive 82/891 (1) in its judgement Nr. C 394/18. The Court held that those articles do not preclude creditors of the divided company whose rights arose prior to the division and who did not avail themselves of the credit protection arrangements provided for in the national legislation, in order to establish that this division is null and void. The dispute in the base proceedings is between the creditors of the company being divided and the newly created company to which part of the assets of that company has been transferred. Those creditors, considering that the divestment company had lost most of its assets as a result of the division, filed an actio pauliana seeking annulment of the divestment document. However, creditors did not avail themselves of the opportunity to object to the division, as required by national law when transposing the Sixth Directive.
The court raised first the question of the relationship between such an action and Article 12 of the Sixth Directive. For the purposes of Article 12 of the Sixth Directive, the member states should provide that such creditors should be entitled to require adequate safeguards if the financial situation of the companies involved in a division warrants such protection. In the litigation, since actio pauliana is not one of the remedies provided for in the national legislation transposing Article 12, the question arises as to whether the creditors in the base proceedings were entitled to bring such an action?
As regards the interpretation of Article 19 of the Sixth Directive, the question arises whether the strict conditions for invoking the nullity of a division must also apply to an actio pauliana which does not affect the validity of that division, but merely permits that division should not be enforceable against the claiming creditors.
The Court emphasised that, in addition to the minimum system provided for in Article 12 of the Sixth Directive, member states may also provide for safeguards. Thus, in light of the purpose of the Sixth Directive, which is to protect creditors against the damage which may result from a division, the Court concluded that Article 12 of that directive does not preclude the creditors of the company being divided from the launch of such actio pauliana.
As regards the system of nullity of separation provided for in Article 19 of the Sixth Directive, the Court interpreted the concept of “invalidity”, which is not defined in that directive, having regard to the context in which those terms are used and the objectives pursued by that directive. According to the Court, that term refers to the annulment of actions, which results in being extinguished ex tunc and has legal effects for all. However, actio pauliana, initiated by the creditors in the base proceedings, does not affect the validity of that division, does not entail its termination ex tunc, and does not produce legal effects for all. Consequently, that action does not fall within the definition of “invalidity” in Article 19 of the Sixth Directive.
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Kovacs Reti Szegheő Attorneys at Law, established in 1992, is one of the oldest independent Hungarian law firms. It is active in Hungarian, English, German, and Italian and operates over a wide spectrum within the fields of civil and business law, for both domestic and international clients.
Dr Attila Kovacs graduated in 1996. After gaining professional experience in Hungarian and German law offices, he became a member of Kovács Réti Szegheő, and has been Managing Partner since 2004. He speaks Hungarian, English, and German, and his primary areas of practice are bankruptcy law, real estate law and corporate law. Attila is Global Chairperson of the GGI DCRI Practice Group.
Published: Debt Collection, Restructuring & Insolvency Newsletter, No. 12, Spring 2020 l Photo: Horváth Botond - stock.adobe.com